Sorting, Wages, Productivity: Increasing Dispersion?
Paper Session
Sunday, Jan. 8, 2017 3:15 PM – 5:15 PM
Swissotel Chicago, Zurich C
- Chair: Richard B. Freeman, Harvard University
The Great Divergence(s)
Abstract
This report provides new evidence on the increasing dispersion in wages and productivity using novel micro-aggregated firm-level data from 16 countries.First, the report documents an increase in wage and productivity dispersions in a large set of countries, for both manufacturing and non-financial business services.
Second, it shows that these trends are driven by differences within rather than across sectors.
Third, it suggests that wage divergence is linked to increasing differences between high and low productivity firms.
Fourth, the increase in wage inequality is driven by a pull from the bottom (i.e. from the low-wage firms), while divergence at the top only occurs in the service sector, and only after 2005.
Fifth, it suggests that both globalisation and digitalisation imply higher wage divergence, but strengthen the link between productivity and wage dispersion. Finally, it offers preliminary analysis of the role of minimum wage, employment protection legislation, trade union density, and coordination in wage setting on wage dispersion and its link to productivity dispersion.
Management Practices, Workforce Selection and Productivity
Abstract
Recent research suggests that much of the cross-firm variation in measured productivity is due to differences in use of advanced management practices. Many of these practices – including monitoring, goal setting, and the use of incentives – are mediated through employee decision-making and effort. To the extent that these practices are complementary with workers’ skills, better-managed firms will tend to recruit higher-ability workers and adopt pay practices to retain these employees. We use a unique data set that combines detailed survey data on the management practices of German manufacturing firms with longitudinal earnings records for their employees to study the relationship between productivity, management, worker ability, and pay. As documented by Bloom and Van Reenen (2007) there is a strong partial correlation between management practice scores and firm-level productivity in Germany. In our preferred TFP estimates only a small fraction of this correlation is explained by the higher human capital of the average employee at better-managed firms. A larger share (about 13%) is attributable to the human capital of the highest-paid workers, a group we interpret as representing the managers of the firm. And a similar amount is mediated through the pay premiums offered by better-managed firms. Looking at employee inflows and outflows, we confirm that better-managed firms systematically recruit and retain workers with higher average human capital. Overall, we conclude that workforce Selection and positive pay premiums explain just under 30% of the measured impact of management practices on productivity in German manufacturing.Assortative Matching in Skill: Evidence from Sweden
Abstract
We decompose the between-firm variance in worker skills to test which mechanisms explain sorting of workers by skill to firms. Our Swedish data allows us to test whether firm skill differences are due to occupational structure, assortative matching within and between occupational groups or a covariance term which is positive if firms with a high fraction of high-skilled occupations also employ the most skilled workers in each occupation. All three components contribute to sorting, but occupational structure is the most important and also accounts for 70% of the between-firm variance. A more detailed analysis shows assortative matching is positive within and between managers and workers in high- and middle-skilled occupations, but close zero for workers in low-skilled occupations.Sorting Between and Within Industries: A Testable Model of Assortative Matching
Abstract
We test for sorting of workers between and within industrial sectors in a directed search model with coordination frictions. We fit the model to sector-specific vacancy and output data along with publicly-available statistics that characterize the distribution of worker and employer wage heterogeneity across sectors. Our empirical method is general and can be applied to a broad class of assignment models. The results indicate that industries are the loci of sorting–more productive workers are employed in more productive industries. The evidence confirms assortative matching can be present even when worker and employer components of wage heterogeneity are weakly correlated.JEL Classifications
- D2 - Production and Organizations
- J3 - Wages, Compensation, and Labor Costs